Entrepreneurs Looking For 'Windfall' Cash In On Climate Change

Originally published on January 28, 2014 11:48 am

In 2008, as scientists documented a record melt in the Arctic ice and Al Gore's film An Inconvenient Truth was in theaters, a half dozen major investment houses launched mutual funds designed to take advantage of financial opportunities offered by climate change.

In Windfall: The Booming Business of Global Warming, journalist McKenzie Funk looks into how some entrepreneurs and even some nations stand to benefit from a changing climate. He talks with Fresh Air's Dave Davies about some of his subjects, ranging from investors buying water rights and farmland around the world, to private wildfire protection services for affluent homeowners, to the nation of Greenland, which will be able to exploit new mineral deposits as its ice melts.


Interview Highlights

On the oil and gas resources now available because of melting in the arctic

Up to a quarter of the world's remaining oil and gas is in the Arctic and there has been a major push to go get it. We've seen that with Shell in the Alaskan Arctic and a bunch of oil block sales in Greenland.

One thing that's happened is we've kind of gotten all of the easy oil everywhere else in the world, and what's left is the Arctic. At the same time, there's no question that the ice pulling back helps for exploration and it helps for drilling. It allows for them to have a longer summer season. No one is going to be doing oil exploration when the Arctic is covered in thick ice, but if you look at Shell's case in Alaska, they had a longer season because the ice wasn't there.

On how climate change affects urban infrastructure

Permafrost is basically when the earth itself freezes. It forms a very solid thing for a foundation. Now imagine it melting and it turns into a muck. If you built a building on top of that, that building starts to shift and roads start to buckle and the entire infrastructure starts melting away. Pipes break and entire buildings can fall over. That is beginning to happen all across the arctic. And Russia has a particularly big problem due to the muddy soil they have in the north.

On the disagreement over who owns the Northwest Passage, where new shipping lanes are opening up as the ice melts

This is something that explorers were trying to find for years, for centuries ... 1700s, 1800s, everyone wanted to find a way that wasn't the Panama Canal to go to the Pacific and they hoped this would be it, and until now, it wasn't.

[The Canadians] want the world to recognize these waters as Canadian; first and foremost, it's a lot about national pride. Secondarily, there could be some real economic benefits. Russia does charge fees to have you bring icebreakers along the way [through their Arctic passage], Canada could conceivably do the same thing. In the case of the Canadians, I think it's mostly about not being pushed around.

On "agreeing to disagree" over sovereignty in the past

For a long time we've had a sort of "Don't Ask, Don't Tell" policy in the Northwest Passage. Basically, [the U.S. has] mentioned to Canada, sort of informally, 'Hey we're going to send a ship across,' and Canada says, 'Well, we're not giving you permission, but that's been noted.' That allows the two countries to agree to disagree about who owns the Northwest Passage.

The basic issue is that [for] international straits all over the world — it's written into the law of the sea and other international conventions that ships have free passage in international straits. ... Any ship can go through them without paying the country on either side a transit fee. Canada's position is that the Northwest Passage has not historically been a strait, it hasn't been used, it has been iced over and those are the two sides of the issue. If every time a ship goes through the Northwest Passage without asking Canada permission, it undermines the Canadian position. So they want to have everyone ask them for permission.

On metal gates that close off ports during a surge of water to protect cities

[In the Netherlands] it's called the Maeslant Storm Surge Barrier and it's these two Eiffel Tower-sized gates. They swing closed and close the Port of Rotterdam, which is the most important port in all of Europe. It's where most of the oil and gas come in and it's where most of everything leaves. They have a huge computer warning system that says, 'OK, the tides are surging. We need to close the barrier.' And that actually happened for the second time in history late in 2013, just a few months ago.

... It basically swings closed from both sides and they meet in the middle, these two massive gates and then this piece comes up from below and it closes off the entire harbor — water can't get in, water can't get out.

... [The proposed gates to protect Manhattan] would go across the narrows, the area below the Verrazano Bridge. ... The storm comes, warning system warns, and the gates swing closed and Manhattan is protected. ... We're talking Statue of Liberty [height] . ... Prices are pretty variant at the moment, but [it's] in the order of $10 billion.

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Transcript

DAVE DAVIES, HOST:

In 2008, as scientists documented a record melt in the Arctic ice, and Al Gore's film, "An Inconvenient Truth," was in theaters, a half a dozen major investment houses launched global warming-themed mutual funds designed to take advantage of financial opportunities offered by climate change.

That's one trend noted in a new book by my guest, journalist McKenzie Funk, who has looked into how some entrepreneurs - and even sound nations - stand to benefit from climate change. His subjects range from investors buying water rights and farmland around the world, to private wildfire protection services for affluent American homeowners, to the nation of Greenland, which will be able to exploit new mineral deposits as its ice melts.

McKenzie Funk's work has appeared in Harper's, National Geographic and The New York Times. His new book is called "Windfall: The Booming Business of Global Warming."

Well, McKenzie Funk, welcome to FRESH AIR. You begin the book with describing being on a Canadian military vessel which is firing weapons into the water. What on earth was going on?

(LAUGHTER)

MCKENZIE FUNK: I think the Canadians were trying to look tough for everyone defending the Northwest Passage, which they would like to claim as their own internal waters. It's a disagreement over basically who owns that patch of the Arctic and it matters because of, well, the shipping lanes that are opening up as the ice pulls back. There's also oil.

DAVIES: Right. So we're talking about new shipping routes that are now going to be open to commercial shipping because the melting of ice in the Arctic. Give us a sense of sort of the scale of the melt and the shipping opportunities it presents.

FUNK: I started reporting this book in 2006. At that point, they were saying, you know, maybe 20-30 years in the future we will see an ice free Arctic in summer. We might be able to use the Northwest Passage then. And point of fact, by the next summer, there was an opening seen by satellites in the Northwest Passage. The summer of 2007 was a massive ice loss; I want to say it was the size of Texas was missing from the usual summertime shrinkage, and it has only accelerated, I think.

There are three different ways you can ship over the top of the world. You could go through the Northwest Passage, which is through the Canadian archipelago, north of Canada, North of North America. It leads to...

DAVIES: And we're talking about a passage from where to where?

FUNK: It would go from the Eastern Seaboard, basically, from the Atlantic to the Pacific over the top of the world. This is something that explorers had tried to find for centuries - 1700s, 1800s, everyone wanted to find a way that wasn't the Panama Canal to go to the Pacific and they hoped this would be it. And until now it wasn't.

The other main shipping route across the top of the Arctic would be the Northeast Passage or the Northern Sea Route, which goes across the top of Russia, and this one's proven to be the most viable economically. We've seen a massive growth in shipping already - 20-fold, 30-fold since 2007.

DAVIES: And again, we're talking about vessels that go from where, the Atlantic ports of the U.S.?

FUNK: These vessels are mostly going to and from Western Europe - or Northern Europe and Asia, China. The big excitement over the shipping routes is that they'll save a ton of time versus the Suez Canal for the Panama Canal. And so that most of the big shipments that it happened now have come from basically northern ports within China, and they'll go over the top of Russia and they'll end up in Europe or Northern Europe. And eventually, we may see the same thing happening in the Northwest Passage, which so far hasn't been used as much commercially.

DAVIES: So when the Canadian government asserts some military authority over the Northwest Passage, the sea route across the top of the ocean from the Atlantic to the Pacific, what are they saying, that they want to charge folks for going there or they want to restrict it in some way?

FUNK: I think it's both of those. I think there could be some real economic benefits. Russia does charge fees to have icebreakers help you along the way. Canada can conceivably do that same thing. But in the case of the Canadians, I think it's mostly about not being pushed around and having this part of their country that they find to be very important to them and wanting the U.S. to not use it when we feel like it.

DAVIES: So if you have a circumstance where the melting of the Arctic ice which, you know, to many is a catastrophic development, in fact, opens commercial possibilities for some countries in the Arctic, it raises another question which is what are some other ways that this would benefit countries in the Arctic? What are some of the ways that Arctic countries may stand to benefit economically from climate change, from global morning?

FUNK: I think the main benefit for the North - there is some question to whether fishing will help and a lot of those economies and right now are based on fishing, whether fish docks will in fact move further north, and if fishing will be better. But I think that is an open question scientifically. The main benefit right now is oil and gas. Up to a quarter of the world's remaining oil and gas is in the Arctic and there's been a major push to go get it.

DAVIES: So we're talking about oil and gas deposits which were inaccessible when they were frozen over, is that right? And now they're going to be reachable?

FUNK: I think that's right. The oil companies will say, look, we've drilled for oil in the Arctic before; it's not just that the ice is pulling back, that's not the only thing that's happening. And I think that's true. You know, one thing that's happened is we've kind of gotten all the easy oil everywhere else in the world, and what's left is the Arctic. At the same time, there's no question that the ice pulling back helps for exploration and it helps for drilling. It allows them to have a longer summer season, you know, no one's going to be doing ice exploration or oil exploration when the Arctic is covered in thick ice. But if you look at Shell's case in Alaska, they had a longer season because the, you know, the ice wasn't there.

DAVIES: You write that Royal Dutch Shell did some thinking and planning about the prospects for and consequences of climate change and came up with two scenarios, one called Blueprint, the other Scramble. Let's go through them. What's the Blueprint scenario and what does it dictate in terms of their activity?

FUNK: In 2007, they came out with these scenarios, and they said these are how we're thinking the world could turn out over the next 40 years. And Blueprints is the world sort of what we want it to be. We want the governments of the world, especially at a local level, to start putting a price on carbon. We want there to be carbon taxes or cap-and-trade. We want that to push innovation to move to a greener economy. There'll be wind. There'll be solar energy. That'll be a big mix of energies certainly, because in both of these scenarios they draw out and they think that the world will be using more energy. And at the same time, they think there will be more natural gas than, say, coal.

DAVIES: So that scenario, which they called Blueprints, essentially posits that the world responds aggressively to climate change and begins to change the way we do things. If the world does that, how did Shell think its business model would change?

FUNK: Well, it was already positioning itself to be heavier in natural gas than it was in oil. And so it assumed that its business would move toward a higher natural gas mix. It had invested in things like the London Array, which is a giant wind farm off the coast of the U.K. It was looking at all sorts of advanced biofuels, things down in Brazil. And at the same time, it didn't think that its fundamental business would change, it would still be an energy company, it would still be an oil and gas company. It would just be one that was perhaps smarter and ahead of the curve than the other one. It basically assumed that regulations would and should come and then at some point its business would be undermined by the fact that the world is worried about climate change, and so it might as well get ahead of this curve.

DAVIES: And then there was this other scenario that it's, you know, think tank came up with called Scramble. Well, what the Scramble predict for the world?

FUNK: Well, I think the description of it was to say that events would outpace actions in Scramble. That we basically wouldn't do anything about climate change, we wouldn't do anything about the coming energy shortage, that we would sort of just let things happen and we would have a bunch of band-aids. We would scramble for coal when we needed coal and we would scramble to find more oil. And we wouldn't really sort of at a governmental level - or even especially international level - have some sort of way to get to where we need to go in terms of the energy system.

DAVIES: And so if that's the world we're heading into, the company sees its business model differently too, right?

FUNK: Yeah. I think that means being part of this scramble. Also, sort of trying to gobble up the world's oil, also trying to kind of go ahead and do what they're doing.

DAVIES: And so when you looked at what the company is up to and talked to some of its executives, what was your sense of which they see coming true?

FUNK: Well, I asked, Jeremy Bentham is the head of their Scenario team now. He's their sort of in-house futurist. And I asked him, is it the view that the Scramble scenario is the one that's come true so far? And he said, yes. Absolutely. That's what's been happening. You know, nothing really happened at the Copenhagen Climate Accords in 2009. They were expecting that the world would come up with a treaty and would start moving toward arresting climate change. There was a push around that same time to do a climate bill in Congress and that died on the vine. And so all these sort of top-level regulatory actions that they thought would push this - push this more blueprintsy(ph) kind of scenario didn't happen. And because of that it, yeah, it does look like a scramble. It doesn't look like any action is being taken at an international or a national level to arrest climate change. And because of that, you know, Shell thinks, well, we're not being regulated in the way we thought we were. This looks more like a scramble.

DAVIES: So go get the oil.

FUNK: Yeah.

DAVIES: McKenzie Funk's book is called "Windfall: The Booming Business of Global Warming." We'll continue our conversation after a short break. This is FRESH AIR.

(SOUNDBITE OF MUSIC)

DAVIES: This is FRESH AIR. And if you're just joining us, we're speaking with journalist McKenzie Funk. His new book, "Windfall" is about new commercial opportunities that have been opened up by climate change. It's called "The Booming Business of Global Warming."

Greenland is particularly an interesting case. You traveled to Greenland. Tell us about what you saw there in terms of the effects of climate change and what its - how its future seems to be changing.

FUNK: I think Greenland is the most interesting case of all here because it's hard not to root for them. You know, it's a very massive country with a tiny population. It has about 57,000 people and it's beautiful. And then they were longtime, they've longtime been dependent on Denmark, which as colonists goes, been a benevolent country. And yet, Greenland wants to have its own independence. It wants to be in charge of what it does. And they think their path forward is to earn enough money from oil and gas and from mining that they don't have to get their annual subsidy from Denmark. And Denmark says, well, if you can pay your own way you're free to go, you're free to be free.

So I went there on a road show with most of the leading politicians in Greenland. In advance of a vote - they were going to have what they call self-governance, which was a degree of independence that they hope will lead to full independence. This involved getting in helicopters, flying from village to village and having meetings with all these citizens who were wondering about this upcoming vote and saying. OK, what's this mean for us? How much money are we going to get from minerals if we do this? Who is going to be in charge of defense? And all the politicians from the main four parties - including the premier - and the leaders of the other parties would sit there and answer questions. And three out of four were very much in favor of this self-governance and eventual independence.

Along the way, we spent a lot of time with citizens, you know, your average Greenlanders who by and large didn't seem too concerned with what was happening with climate change. And I don't mean that they were happy about not being able to hunt in the winter, probably because the ice was too brittle, but new fish stocks were moving in and they did seem to want independence. The vote wasn't even close. In some of the villages I went to, I think they voted 97 percent in favor of self-governance. And the country as a whole, it does now have self-governance, which means almost everything but defense is being handled by Greenland itself.

DAVIES: And did the citizens of Greenland that you spoke to, and did you see, I mean physical changes in the landscape from climate change? What's actually happening there?

FUNK: Yeah, absolutely. The most stark examples where it came from, one fisherman who told me about some new fish species that had freaked everyone out when it appeared five years ago and now it was the basis of their economy. It's because the waters had warmed and the species was moving, moving up. Another friend lived in a village that in wintertime they used to be able to travel to and from a larger city via taxi on the ice. It would get so frozen in the sound that they would have an ice road, it would go to and from and it was much cheaper. And some...

DAVIES: This was crossing a body of water on a taxi?

(LAUGHTER)

FUNK: Exactly. Well, which really isn't that scary when they're, you know, 20 feet thick of ice below you. But this, I think two winters ago, they had such a warm winter that there was no ice and they had to get to and from the village they had to take helicopters. It was still too dangerous to do boats because there would be little icebergs and that's obviously horrible. The seal hunters have a harder time because they're going out on the ice. If the ice is brittle, they can't hunt as they traditionally did.

But the other big example was one of the mines called the Black Angel. Black Angel has what was once the highest grade zinc in the world and may still be. It did run up in the '70s and then shut down because they thought they'd gotten all the good stuff. And maybe five years ago, some British geologists were out there walking around the defunct mine and they saw that a glacier had pulled back and they sampled some of the rocks below that glacier and they found a zinc deposit just as good as the first one.

Just as big. It was enough to open up the mine. And they now have a shipping season that's two months longer to and from that mine because the ice isn't there in the fjord as much. So a very clear case of climate change causing the ice to go away and that helping the local economy. And for Greenlanders who have been very well educated by Denmark and who are remarkably worldly, who have a very good Internet connection and have better fashion sense than I do, you know, these were all good things. They're excited to have their independence.

DAVIES: Yeah. Does anybody worry about, you know, having a zinc mine expand? I mean, that may not be the most pleasant neighbor.

FUNK: Yeah. And this is a big issue. They just had an election, in fact, and one of the big questions in the election was how much should be endanger our environment which we've depended on forever in order to fund this independence? And there was a big protest vote. A lot of people said, no, we can't just say yes to any oil company that comes.

And at the same time, the party that was voted back into power, the prime minister, she's pushing for allowing uranium mining. And that's because that's the way she sees forward to independence. But, you know, they are very aware of the dangers of particularly the zinc mine. That mine had left a bunch of tailings in the fjord before and they said any mine that comes in now, we need to have strong regulations to stop that.

They are very worried about the oil companies and about what could happen in a spill. Oil spills are extremely hard to clean up in ice. It's very remote. You know, you can't respond to a spill up there like you could in the Gulf of Mexico. And they're aware of that. But it's a small country and they need money, so I think there's an open question still.

DAVIES: We're speaking with McKenzie Funk. His book "Windfall" is about commercial interests that see possibilities for profit in global warming. We'll continue our conversation after a short break. This is FRESH AIR.

(SOUNDBITE OF MUSIC)

DAVIES: This is FRESH AIR, and if you're just joining us, we're speaking with journalist McKenzie Funk. He has a book about new commercial opportunities that are being exploited with climate change. It's called "Windfall: The Booming Business of Global Warming." You know, one country that's been dealing with rising seas for centuries is the Netherlands, and, you know, you write about some Dutch companies that see opportunities to export their water management technology around the world as the seas rise.

And you describe a visit to Rotterdam and this enormous storm surge barrier there. Can you just describe it?

FUNK: Sure. You've done well by calling it enormous. It's called the Maeslantkering or Maeslant Storm Surge Barrier and it's these two Eiffel Tower-sized gates. They swing open - or, rather, swing closed and close the Port of Rotterdam which is the most important port in all of Europe. It's where most of the oil and gas come in and most of everything leaves.

And they have a huge warning system. It's this computer warning system that says, OK, the tides are surging, we need to close the barrier. And that actually happened for the second time in history late in 2013, just a few months ago.

DAVIES: So we're talking about a huge metal gate that's as long as the Eiffel Tower is wide but it moves through the water on hinges so that in effect it kind of closes off the water, closes off the port.

FUNK: Yeah. And there's also something that comes up from the bed of the canal there, the passage there. And so it basically just swings closed from both sides and they meet in the middle, these two massive gates. And then this piece comes up from below and it closes it off the entire harbor. Water can't get in, water can't get out.

DAVIES: And the company that built this took a look at New York. What would it take to protect New York, right? Now, tell us what they came up with.

FUNK: They did. Well, a few companies have worked on these. The company that worked in New York was Aracdis, the Dutch company that made, I think, the most amazing presentation at one of these meetings I went to with a bunch of engineers. And it's basically the Maeslantkering, the Maeslant Barrier, modified for New York. And it would go across the narrows. That's the area below the barriers on a bridge. And it would do the same thing. It would swing closed.

Now, that gap across the narrows is actually larger than what they had to span in Rotterdam and, you know, the basic mechanism is the same, though. Storm comes, warning system warns, and the gates swing closed, and Manhattan is protected.

DAVIES: And how big would these gates be?

FUNK: I don't know the exact numbers but they're, again, we're talking Statue of Liberty or more. And that's just for the gates. I mean, if you've ever driven across the Verrazano Bridge you know that it's a massive span and especially if there's traffic it takes a long time to go across. And these are gates that have to swing across and close most of that gap.

DAVIES: And what would it cost, do we know?

FUNK: Estimates are pretty varied at the moment but in the order of $10 billion.

DAVIES: Right. Now, there's a downside. If you have something like, say, Superstorm Sandy or something worse and a storm surge coming, you close the gates, the gates work. The water doesn't disappear, right?

FUNK: Yeah. And I think that that was something that the engineers at Arcadis and in general in Holland they are not slow to point out. I think they're very aware of the fact that when water hits something like this, it spreads out. So if you build gates that block off the Verrazano, then those areas in Brooklyn and Staten Island on either side - on, basically, on the wrong side of that gate - they're going to get a bigger storm surge, I think about two feet or more.

It means that you're protecting Manhattan but you're flooding these generally poorer areas on the outside. I mean, it's sort of a metaphor for a lot of these things with climate change.

DAVIES: Right. But it's one thing to offer an idea to New York which would save Manhattan at the risk of flooding Staten Island. I mean, that would be politically problematic and they haven't put money into that. Are there places in the world where people have bought the technology and are installing it?

FUNK: There are storm surge barriers already in St. Petersburg, Russia. There's one helping protect London. There's - Singapore has something of the sort. There are sea walls outside of Shanghai, although not something quite like this. So - and then of course Venice. That one's quite well known, although that's more because Venice is sinking than because sea levels are rising.

But, yeah, these are being installed. Arcadis, this same company we've talked about, has done a lot of work in New Orleans, in fact, on levies and smaller storm surge barriers. And so this, you know, in recent storms it's worked quite well.

DAVIES: You know, your book describes, you know, private interests that see a chance to make money from the effects of climate change and sovereign states that appear to be positioned to profit. Do you see either the private interests or the governments deliberately influencing public policy to discourage efforts to halt global warming? Are we seeing people who will, you know, happily destroy the planet to make a buck?

FUNK: I have not seen that, no. I think it's an important point to say that the people I have talked to, I don't think they were necessarily bad people. Now, they were looking to make a buck but I don't think many of them were wanting, OK, let's let the planet burn so I can make this buck. It's more that they were sort of hopeless about the prospects. And I don't think there's any lobbying against sort of climate action.

But I wouldn't doubt that the fact that many of us are not going to be as bad off as, say, your average Bangladeshi slows action on climate change. There's - the charge levied at, say, Halliburton that it likes war. I always find that a bit dubious. I think that's the same for these companies. I don't think that they like climate change. I think they're looking to make money in it and I think if there was more of their bottom line at risk that maybe they'd be more pro-climate action. Maybe they'd be pushing harder to stop it.

But actively working against it, I never saw any evidence of that. No. That, for me, after years working on this book was the major takeaway, was this sort of imbalance, the idea of this unevenness of the effects. You know, some of us will get rich off climate change. Some of us will at least be able to pay for the technologies that can protect us.

You know, Manhattan versus Staten Island. That, on a global scale, is pretty important if you want to understand why are we not doing anything about climate change. Sure, there are skeptics but there's also the fact that we in the north and in the west are either going to be fine or even better off, in some rare cases with climate change, or we're going to be able to protect ourselves with these technologies and we can pay for them.

But you're not going to see a lot of the world being able to afford a giant $10 billion sea barrier. You're not going to see a lot of the world being able to afford desalination plants to get water if they're running dry. And you're not going to see all the world being able to buy up farmland if theirs goes fallow. And I think that explains a lot about climate inaction and really raises the moral stakes.

DAVIES: Well, McKenzie Funk, I want to thank you so much for spending some time with us.

FUNK: Well, thank you.

DAVIES: McKenzie Funk's new book is called "Windfall: The Booming Business of Global Warming." You can download podcasts of our show at freshair.npr.org. Follow us on Twitter at nprfreshair and on Tumblr at nprfreshair.tumblr.com. Transcript provided by NPR, Copyright NPR.